Cooperative sugar factories in Maharashtra have heaved a sigh of relief as the Supreme Court, in its recent order, has asked the Commissioner of Income Tax (Appeals) to re-look on the issue of income-tax claims of Rs 2,500 crore made on the mills since 1992-93. In view of the apex court order, the mills have got further time to argue their cases before the Commissioner of Income Tax (Appeals).

The cooperative mills had been arguing that they were bound to pay the final cane price to the farmers on the basis of the state advisory price (SAP) fixed by the government, and it did not constitute appropriation of profits.

However, the Income Tax Department had been of the view that SAP was determined on the basis of price recommended by the mills after the finalisation of accounts and, therefore, the differential amount between SAP and the statutory minimum price (SMP) would constitute appropriation of profits, and not expenditure or expenses under Section 37 of the Income Tax Act.

The Federation of Cooperative Sugar Factories in Maharashtra, which is a representative body of over 170 mills, has appealed to the Central Board of Direct Taxes (CBDT) to start hearing by the Commissioner of Income Tax (Appeals) at the earliest so that the dispute could be resolved.

Federation officials told Business Standard: “The sugarcane price is paid in pursuance of Directive Principles of State Policy in the larger interests of the economy and not for avoiding the income-tax. The apex court has already upheld the validity of the state government’s power to fix the sugarcane price. There is no profit motive involved.”

The chairman of a cooperative sugar mill said on condition of anonymity that the primary objective of the cooperative sugar factory was to ensure remunerative prices to farmers for sugarcane and not to make undue profits.

According to officials, in view of the apex court order, the Commissioner of Income Tax (Appeals) would take into account the manner in which the business works, resolution of the state government, the modalities and the manner in which SAP and SMP are decided and the timing difference which would arise on account of the difference in the accounting years.